Oil and gas operators understand that severance tax is a normal compliance obligation, but many overlook how often overpayments happen. And without a systematic review process in place, those dollars stay gone.

We’ve seen it across the board. Operators pay what they’re billed, trust the numbers are right, and move on. But severance tax calculations are complex; rates change, exemptions get overlooked, classifications get misapplied. If no one is responsible for staying on top of those changes and conducting reviews, those errors compound year after year.

The Case for Recurring Reviews

A one-time annual audit might catch some issues, but the real value comes from building prospective reviews into your regular compliance rhythm. Here’s why:

  • Tax Rules Aren’t Static: Qualification thresholds shift, new exemptions get introduced, what didn’t apply last year might apply now. If you’re only conducting a review once a year, you’re missing opportunities.
  • Production Data Changes Constantly: Wells that qualified for low production exemptions six months ago might not qualify today – or vice versa. Without an ongoing review process, you’re either leaving money on the table or risking non compliance.
  • Refund Windows Don’t Stay Open Forever: Most states have limitations on how far back you can go to claim a refund (in Texas, the statute of limitations is four years). If you wait too long to identify an overpayment, you lose the ability to recover it. Regular reviews keep you within those windows.

What Gets Missed Without a System in Place

The most common issues we see are missed exemptions. Many operators don’t realize their wells qualify for high cost gas or low producing well exemptions, or they qualified at one point, stopped qualifying, and never updated their filings.

Marketing cost deductions are another area where money gets left behind. If your gas is moving through gathering systems or processing facilities before it hits the point of sale, there are often deductible costs that should reduce your taxable value. But claiming those deductions requires documentation and a clear understanding of what qualifies.

Then, there are rate applications. Different product types, different production methods, and different jurisdictions all come with their own rate structures. Applying the wrong rate, even by a fraction, adds up fast when you’re talking about high-volume production.

The Right Cadence for Reviews

We recommend reviewing severance tax on a quarterly basis. The goal isn’t just to catch errors after the fact, it’s to proactively identify issues and make adjustments in real time. That means fewer corrections later and better cash flow throughout the year.

For operators with large portfolios or assets in multiple states, quarterly reviews make even more sense. The complexity increases with scale, and so does the potential for error.

Utilize Turnkey Solutions

Regular severance tax reviews, when done right, can be a cumbersome addition to your existing operations. We act as a severance tax partner for clients, specializing in severance tax compliance, incentive recovery, and marketing cost reviews. We work with operators of all sizes to build out systematic review processes that fit into existing workflows. Whether you need a full portfolio audit or ongoing quarterly support, we can help you identify overpayments, file for refunds, and make sure you’re not leaving money behind going forward.

If you haven’t reviewed your severance tax filings recently, or if you’re handling it in house without a structured process, let’s talk. There’s a good chance there are dollars sitting out there that belong back on your balance sheet.